What are the main advantages and disadvantages of organizing a business as a corporation?
What will be an ideal response?
The main advantages are limited liability to the stockholders and better access to lower cost capital by issuing stocks and bonds. The main disadvantage is that some of the corporate income is taxed twice. First, the corporation pays a corporate income tax. Second, the owners of the corporation pay a personal income tax on any capital gains they might earn.
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Government provides a nonexcludable public good that no one wants. This situation is most closely related with:
A) government solving a market failure. B) government failure. C) market failure. D) the market solving a government failure.
Alex wants to maximize his utility. At his current level of consumption, Alex's marginal utility from an additional cup of coffee is 15 utils, and his marginal utility from an additional can of soda is 11 utils. If the price of a cup of coffee is $3 and the price of a can of soda is $2, Alex should:
A. decrease his spending on both coffee and soda. B. reallocate his spending away from soda and towards coffee. C. not change his consumption of either coffee or soda. D. reallocate his spending away from coffee and towards soda.
Consider a Stackelberg duopoly with the following inverse demand function: P = 100 ? 2Q1 ? 2Q2. The firms' marginal costs are identical and are given by MCi(Qi) = 2. Based on this information, the follower's reaction function is:
A. rF(QL) = 24.5 ? 0.5QF. B. QF = 49 ? 0.25QL. C. QL = 49 ? 0.5QF. D. rF(QL) = 24.5 ? 0.5QL.
Which of the following is a tool of the Federal Reserve System?
A. Encouraging employment by lending money at a discounted rate to firms that are in danger of having to make layoffs. B. Reducing the burden of household debt by capping credit card and other loan interest rates at reasonable levels C. Buying or selling stocks of publicly traded corporations in order to stabilize the stock market D. Buying or selling bonds in the open market in order to stimulate the economy during recessions and prevent inflation